For any company, keeping track of its transactions and expenses is necessary because it’s a way to ensure that it’s not overspending or wasting resources. Of course, big companies take accounting seriously because it can significantly impact their financial position, shareholders, and prospects.
On the other hand, small businesses don’t usually have significant leanings toward accounting. However, these are still businesses, so accounting for small businesses is recommended. Unfortunately, mistakes are bound to happen, and if these are not appropriately addressed, they can significantly affect the company’s growth. Furthermore, accounting for small businesses has to be done properly because it’s the only way for a small business to survive, break even, or increase its profits.
With this in mind, small business owners should be aware of common accounting mistakes in their field, such as:
#1 – Procrastinating While Accounting
Accounting is a never-ending process, especially for small businesses. Maybe you’re working on a particular project for the company, which means accounting might have to be put aside for a few days. Or perhaps you’re stuck on another project, and you have to spend your time on that first. Or maybe you’re just too tired because it’s been a very long day.
Whatever the reason, there’s no getting around it. You have to account for the business, and being a small business owner means that you want to get things done quickly. You should put a system in place that allows you to do the accounting in small chunks, such as a few hours a day or a couple of hours every week. It might take a while, but at least it’ll keep your finances on track.
#2 – Misunderstanding Business Metrics
Business metrics determine a company’s performance concerning a specific goal. For example, a company that makes video games will use the number of copies sold to determine whether the game was a hit or not.
Since small businesses are not usually concerned about how the company is doing compared to its competition, the business metrics that a small business owner should focus on are unique to the business itself. For accounting, metrics might involve the amount of income, whether that would be the one from a particular project or the actual cash flow.
#3 – Mixing Personal and Business Accounting
Mixing personal and business accounting is a big no-no. It’s best to separate the two because of the different tax and legal obligations a small business owner has compared to the general public.
This can be fixed by making sure that there’s a separate bank account for the business, and you can always allocate a certain amount of money for it. You should also specify in accounting software if you want to separate your expenses from personal and business.
#4 – Miscalculations
Miscalculations are bound to happen, and there are no two ways about it. You can claim that it’s okay to make them or just try to avoid them. It’s up to you, but you have to remember that some calculations are bound to be wrong.
For example, there’s no way that you can have an exact idea of how much money the business will make. You can always have a rough estimate, especially if you just opened the business. However, many things can happen because of miscalculations, including not being able to pay employees and not having enough money for basic supplies.
#5 – Not Using a Good Accounting Software
If you’re serious about accounting, you have to use good accounting software. These types of software are programs designed to help you manage your finances. They work by categorising expenses and transactions, which means that you can always know where the money is going and exactly how much you have left.
#6 – Doing Everything by Yourself
It’s essential to have a good idea of what you’re doing regarding accounting. However, that doesn’t mean that you have to do everything yourself. You can always bring in the help of an accountant, so your time is spent on the other aspects of the business, such as dealing with customers and creating new products.
When it comes to small businesses, there are many things that a small business owner has to do, and most of these things are usually time-consuming. Accounting for small businesses shouldn’t be one of them. The accounting process can be much easier with the right mindset software and some help, so you should be open to these.
If you’re looking for accountants in Southampton , Fiander Tovell can help you! Aside from accounting, we provide other services such as auditing, taxes, and corporate advisory to ensure that your business never misses its financial obligations. Simply go to our website to schedule an appointment!